Markets & After hours
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HOW YOU REACT TO YOUR UNPROFITABLE TRADE
http://daytrading.about.com/od/tradingpsychology/qt/ReactingUnprofitableTrade.htm
One of the things that all traders (new traders, amateur traders, and professional traders) have in common is that they are going to experience an unprofitable trade from time to time. As one might expect, new traders and amateur traders tend to experience unprofitable trades more often than professional traders do, but that is not the main difference between the different groups of traders. The main difference between new traders, amateur traders, and professional traders when confronted with an unprofitable trade, is the trader's reaction to the unprofitable trade.
New Traders
When new traders experience an unprofitable trade (e.g. a trade that reaches its stop loss), they usually think that they have done something wrong, and they immediately starting looking for a way that they could have modified their trading system or trading technique to avoid the unprofitable trade (e.g. they should have been using a two minute chart instead of a one minute chart).
Amateur Traders
When amateur traders experience an unprofitable trade, they usually get angry or upset, and start looking for someone to blame for their trade being unprofitable (e.g. a larger trader was looking for their stop loss, etc.).
Professional Traders
Professional traders on the other hand, usually say something like "Hmm, that is very interesting", or "Hmm, I didn't expect that to happen", or perhaps "Hmm, what shall I have for dinner this evening?", while they calmly review their charts to see where their next trade will now occur.
One other difference between the way that new traders, amateur traders, and professional traders react to an unprofitable trade, is that professional traders usually know why the trade was unprofitable (i.e. why the market continued moving in the opposite direction to their trade, and why the market moved to the price that it moved to).
Learn From Your Reaction
Regardless of which group of traders you think that you are in, your reaction to an unprofitable trade will tell you the truth about which group of traders you are in. For example, you might think that you are a professional trader, but if you react to an unprofitable trade with anger, then you are not a professional trader, but are probably an amateur trader who is trading incorrectly (e.g. using one of those well advertised, 100% guaranteed trading systems, that for some reason only makes long trades), but doesn't want to admit it.
http://daytrading.about.com/od/tradingpsychology/qt/ReactingUnprofitableTrade.htm
One of the things that all traders (new traders, amateur traders, and professional traders) have in common is that they are going to experience an unprofitable trade from time to time. As one might expect, new traders and amateur traders tend to experience unprofitable trades more often than professional traders do, but that is not the main difference between the different groups of traders. The main difference between new traders, amateur traders, and professional traders when confronted with an unprofitable trade, is the trader's reaction to the unprofitable trade.
New Traders
When new traders experience an unprofitable trade (e.g. a trade that reaches its stop loss), they usually think that they have done something wrong, and they immediately starting looking for a way that they could have modified their trading system or trading technique to avoid the unprofitable trade (e.g. they should have been using a two minute chart instead of a one minute chart).
Amateur Traders
When amateur traders experience an unprofitable trade, they usually get angry or upset, and start looking for someone to blame for their trade being unprofitable (e.g. a larger trader was looking for their stop loss, etc.).
Professional Traders
Professional traders on the other hand, usually say something like "Hmm, that is very interesting", or "Hmm, I didn't expect that to happen", or perhaps "Hmm, what shall I have for dinner this evening?", while they calmly review their charts to see where their next trade will now occur.
One other difference between the way that new traders, amateur traders, and professional traders react to an unprofitable trade, is that professional traders usually know why the trade was unprofitable (i.e. why the market continued moving in the opposite direction to their trade, and why the market moved to the price that it moved to).
Learn From Your Reaction
Regardless of which group of traders you think that you are in, your reaction to an unprofitable trade will tell you the truth about which group of traders you are in. For example, you might think that you are a professional trader, but if you react to an unprofitable trade with anger, then you are not a professional trader, but are probably an amateur trader who is trading incorrectly (e.g. using one of those well advertised, 100% guaranteed trading systems, that for some reason only makes long trades), but doesn't want to admit it.
Yep, LondonVisitor, Karen may have a strategy - but only the question is if this is done with adequate regards to risk management, and keeping in mind 'black swan events'??? I am sure, that she would have been smart enough to visit history, because making money from selling OTM Options can surely get one consistent returns.... till a one off event blows up on your face. E.g If one were to sell 'earthquake insurance' its easy to pocket premium year after year... maybe over many decades as well. But it takes only day, and one event to claw back not only the profits, but bankrupt you as well - if one has not adequately reinsured.
One of the consistently profitable option trader and hedge fund manager was Victor Neiderhoffer. At one time, he was also managing George Soros money. His fund made outsized returns of 50-100 percent, year after year. Later George Soros, realized the weakness in his strategy, withdrew his funds, and warned Neiderhoffer. His luck ran for over a decade, and he was awarded the best fund manager in 2006. He blew up in 2007. Not only he lost all the money in his fund, but went bankrupt, and had to sell his house and personal effects (silverware and artworks) as well!! That is what happens if you are leveraged till top of your head and don't account for risk of extreme event, but are totally focused on your P&L.
Then there is LTCM. A big hedge fund with outsized returns, who were so successful, that they returned capital to their investors, when it was pouring in truckloads thru their doors. Not many know that LTCM was co-founded by Myron Scholes and Robert Merton (creators of option pricing formula used by traders - which is not system robust as it does not account for 'fat tails') They won the Noble Price for it as well. After a few years of great returns, ironically the fund co-founded by creators of option pricing formulas too went bankrupt!! So we have history as well as precedence that outsized returns are possible in the market. But the question is how well hedged are the enormous risk taken to earn these returns.? Time will tell on Karen!!
One of the consistently profitable option trader and hedge fund manager was Victor Neiderhoffer. At one time, he was also managing George Soros money. His fund made outsized returns of 50-100 percent, year after year. Later George Soros, realized the weakness in his strategy, withdrew his funds, and warned Neiderhoffer. His luck ran for over a decade, and he was awarded the best fund manager in 2006. He blew up in 2007. Not only he lost all the money in his fund, but went bankrupt, and had to sell his house and personal effects (silverware and artworks) as well!! That is what happens if you are leveraged till top of your head and don't account for risk of extreme event, but are totally focused on your P&L.
Then there is LTCM. A big hedge fund with outsized returns, who were so successful, that they returned capital to their investors, when it was pouring in truckloads thru their doors. Not many know that LTCM was co-founded by Myron Scholes and Robert Merton (creators of option pricing formula used by traders - which is not system robust as it does not account for 'fat tails') They won the Noble Price for it as well. After a few years of great returns, ironically the fund co-founded by creators of option pricing formulas too went bankrupt!! So we have history as well as precedence that outsized returns are possible in the market. But the question is how well hedged are the enormous risk taken to earn these returns.? Time will tell on Karen!!
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A small bon and his father were walking on the mountains. Suddenly, his son falls, hurts himself and screams: "AAAhhhhhhhhhhh!!!" To his surprise, he hears the voice repeating, somewhere in the mountain: "AAAhhhhhhhhhhh!!!" Curious, he yells: "Who are you?" He receives the answer: "Who are you?" The boy not knowing what an echo is, screams to the mountain: "You are stupid!" The voice answers: "You are stupid!"
He looks to his father and asks: "What's going on?" The father smiles and says: "My son, pay attention."
The man then screams: "You are a champion!" The voice answers: "You are a champion!" The small boy is surprised, but does not understand. Then the father explains: "People call this ECHO, but really this is LIFE. It gives you back everything you say or do. Our life is simply a reflection of our actions. If you want more love in the world, create more love in your heart. In all aspects of life; Life will give you back everything you have given to it." The small boy learnt this lesson well. He yelled "You are good" and he got back the reply "You are good" The father smiled!
He looks to his father and asks: "What's going on?" The father smiles and says: "My son, pay attention."
The man then screams: "You are a champion!" The voice answers: "You are a champion!" The small boy is surprised, but does not understand. Then the father explains: "People call this ECHO, but really this is LIFE. It gives you back everything you say or do. Our life is simply a reflection of our actions. If you want more love in the world, create more love in your heart. In all aspects of life; Life will give you back everything you have given to it." The small boy learnt this lesson well. He yelled "You are good" and he got back the reply "You are good" The father smiled!
Great info DSM.Thanks !!!
For anyone interested in over leveraging , there is a book called " The Big Short" by Michael Lewis.This book is based on leveraging in the real estate sector inspired by true events.
http://www.amazon.com/The-Big-Short-Doomsday-Machine/dp/0393338827
For anyone interested in over leveraging , there is a book called " The Big Short" by Michael Lewis.This book is based on leveraging in the real estate sector inspired by true events.
http://www.amazon.com/The-Big-Short-Doomsday-Machine/dp/0393338827
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